Small lenders take initiative on rates

Colin Brinsden, AAP Economics Correspondent

Three small mortgage lenders have gone out on their own and cut interest rates on home loan products, putting pressure on bigger financial institutions to follow suit.

Treasurer Wayne Swan said the cuts were a sign that the federal government's banking competition reforms are working.

Financial comparison website RateCity said Holiday Coast Credit Union cut several of its loan products by 20 basis points, BMC Mortgage reduced several loans by 10 basis points, while IMB trimmed one of its loans by five basis points.

"While there have been several rate increases out of cycle, we've never seen lenders drop variable home loan rates while the cash rate remains stable," RateCity spokesperson Michelle Hutchison said in a statement.

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Since the government announced its comprehensive package of banking reforms in December 2010 to boost competition, smaller banks have captured an estimated $21 billion in home-lending business from the big banks.

"We've made it easier for consumers to walk down the road and get a better deal if their bank doesn't do the right thing by them," a spokesman for Mr Swan told AAP on Thursday.

Ms Hutchison believes other lenders have room to move. On average they have kept 42 basis points of the Reserve Bank of Australia's (RBA) 175 basis points of official rate cuts since November 2011 from variable home loan borrowers.

"If these three lenders can afford to cut variable rates out of cycle, other lenders - including the major banks - have no excuse to sit on their hands," she said.

RBA governor Glenn Stevens will likely be quizzed on the cost of funds for banks and how that fits in with monetary policy when he faces federal MPs in Canberra on Friday.

In its most recent statements, the central bank has indicated it stands ready to cut the cash rate again if needed given the benign inflation outlook.

New data on the Thursday bucked the trend of subdued pressures, indicating that the average wage jumped five per cent in the year to November for an annual salary of $72,592.

This is well above the RBA's four to 4.5 per cent line in the sand for wages growth, and more than double the inflation rate of 2.2 per cent as of December last year.

However, the composition of this data set tends to make it volatile, which is why the RBA prefers to use the wage price index as one of its main guides to wages growth.

That index, released on Wednesday, showed annual wage growth at a more contained 3.4 per cent.